PERC/LO-N Regional Project

1
PERC/LO-N Regional Project Tackling Taxation,
Informal Economy and Corruption in the Western
Balkans towards better governance and
democratic processKick-off regional meeting12
- 15 March 2013, Sofia

• Current challenges and possibilities for changes
• Bruno S. Sergi
• University of Messina ETUI

2
Some key issues in perspective

• Terrific expectations about EU membership in
  terms of social improvement and economic growth
• Todays economic crisis

3
Relevant Challenges

• SEE TU economic experts network has already
  identified several relevant challenges and
  problems
• Unsustainable reduction in wages and pensions
• Growing inequality and injustice in the
  distribution of wealth
• A strict conditionality of the IMF and other
  international institutions, while governments
  often misuse IMFs support thereby concealing bad
  national strategies and policies
• Labour market difficulties and uncertainty
  regarding who should be in charge of job
  creation
• Amendments to and passing of new labour laws have
  reduced workers rights, wages and fundamental
  standards of decent work.

4
Southeast Europe, Data at a Glance
Country Population (end-year, million) Real GDP change, in 2011 GDP per capita at PPP (euros) 2011 Annual inflation rates (consumer prices), 2011
Albania 3.2 3.0 6,800 3.4
Bosnia and Herzegovina 3.8 1.3 6,800 3.7
Croatia 4.4 0.0 15,100 2.3
Kosovo 2.1 5.0 5,080 (b) 7.3
FYR Macedonia 2.1   3.1 9,200 3.9
Montenegro 0.6 2.4 10,500 3.1
Serbia 7.3 1.6 8,800 1.1
         
Germany 81.8 3.1 28,700 2.5
Greece 10.8 6.9 21,500 3.3
Poland 38.1 4.3 15,300 4.3
EU-27 501 1.5 24,400 3.1
5
Annual Growth Rates for Industry
Country 2008 2009 2010 2011
Albania 8.7 10.6 18.6 10.0
Bosnia and Herzegovina 7.3 1.5 3.7 5.6
Croatia 1.2 -9.2 -1.4 -1.2
FYR Macedonia 5.1 -8.7 -4.8 3.3
Montenegro -2.0 -32.2 17.5 -10.3
Serbia 1.4 -12.6 2.5 2.1
         
Germany (a) -0.1 -16.3 10.9 7.6
Greece (a) -4.2 -9.2 -6.6 -8.1
Poland (a) 2.4 -3.7 10.8 7.2
EU-27 (a) -1.8 -13.7 6.8 3.2
6
Inward FDI Stock, as a percentage of GDP
Country 2000 2005 2010
Albania 6.78 12.48 36.67
Bosnia and Herzegovina 19.66 27.54 42.50
Croatia 13.10 32.74 56.68
FYR Macedonia 15.05 35.88 47.98
Montenegro 138.18
Serbia 46.51
Montenegro Serbia 8.87 20.03
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Ranking on the Ease of Doing Business
Country Doing Business 2013 Rank Doing Business 2012 Rank
 
FYR Macedonia 23 22
Montenegro 51 57
Croatia 84 80
Albania 85 82
Serbia 86 95
Kosovo 98 126
Bosnia and Herzegovina 126 125
   
Germany 20 18
Greece 78 89
Poland 55 74
8
Global competitiveness index
Country Rank 2012-2013
Switzerland 1
Singapore 2
Germany 6
USA 7
UK 8
Honk Kong 9
Japan 10
China 29
Poland 41
Russia 67
Croatia 81
Bosnia and Herzegovina 88
Albania 89
Serbia 95
Greece 96
Source World Economic Forum, The Global Competitiveness Report 2012-2013, available at lthttp//reports.weforum.org/global-competitiveness-report-2012-2013/gt.
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Economic Freedom Ranking
  World Rank 2012 World Rank 2011
Germany 26 71 23 71.8
FYR Macedonia 43 68.5 55 66
Albania 57 65.1 70 64
Poland 64 64.2 68 64.1
Montenegro 72 62.5 76 62.5
Croatia 83 60.9 82 61.1
Serbia 98 58 101 58
Greece 119 55.4 88 60.3
Bosnia and Herzegovina 104 57.3 104 57.5
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Economic Freedom Ranking
  World Rank 2012
Germany 26 71
Albania 57 65.1
Poland 64 64.2
Croatia 83 60.9
Bosnia and Herzegovina 104 57.3
China 138 51.2
Syria 139 51.2
Russia 144 50.5
Note freedom scores are in . 100 - 80 free 79.9 - 70 mostly free 69.9 - 60 moderately free 59.9 - 50 mostly not free 49.9 - 0 repressed. Source The Heritage Foundation (in partnership with The Wall Street Journal).

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Knowledge Indexes
Rank   Country 2009 Knowledge Economy index 2009 Knowledge Index
1 2 Denmark 9.52 9.49
12 3 Germany 8.96 8.92
27 3 Hungary 8.00 7.88
37 -2 Poland 7.41 7.38
38 -7 Greece 7.39 7.58
40 4 Croatia 7.28 7.28
43 8 Bulgaria 6.99 6.94
47 13 Romania 6.43 6.25
53 20 Serbia 5.74 6.32
58 14 FYR Macedonia 5.58 5.66
79 7 Bosnia and Herzegovina 4.58 4.68
93 10 Albania 3.96 3.92
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EBRD Index for Banking Sector Reform and Interest
Rate Liberalisation
Albania Bosnia and Herzegovina Croatia FYR Macedonia Montenegro Serbia Slovenia
2000 2,33 2,33 3,33 2,67 n.a. 1 3,33
2001 2,33 2,33 3,33 2,67 n.a. 1 3,33
2002 2,33 2,33 3,67 2,67 n.a. 2,33 3,33
2003 2,33 2,33 3,67 2,67 n.a. 2,33 3,33
2004 2,67 2,67 4 2,67 2,3 2,33 3,33
2005 2,67 2,67 4 2,67 2,3 2,67 3,33
2006 2,67 2,67 4 2,67 2,7 2,67 3,33
2007 2,67 2,67 4 2,67 2,7 2,67 3,33
2008 3 3 4 3 3 3 3,33
2009 3 3 4 3 3 3 3,33
2010 3 3 4 3 3 3 3,33
13
Loans-to-GDP Ratio in (loans to
nonfinancial private sector)
Albania Bosnia and Herzegovina Croatia Greece FYR Macedonia Montenegro Poland Serbia
2004 9,6 32,3 51,8 n.a. 22,1 16,8 n.a. 24,8
2005 15,3 36,5 56,4 75,6 25,1 20,7 89,6 30,7
2006 22,2 39,5 64,0 79,5 30,2 39,4 93,1 30,8
2007 30,0 44,4 67,1 88,0 36,8 83,0 98,0 35,3
2008 35,2 50,9 68,1 92,2 43,9 90,7 101,8 41,4
2009 37,2 50,2 69,6 90,3 42,9 80,4 107,5 45,0
2010 38,2 51,9 70,2 92,1 44,9 81,4 109,6 47,5
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Vulnerability Indicators
  Banking system Banking system Banking system Bank dep. Loans/ dep. Country risk Nonperforming loans Nonperforming loans
    (end of 2010)/4 (end of 2010)/4 (end of 2010)/4 latest latest      
    Total assets as share of GDP Share in total assets Share in total assets     12.10.11    
    Total assets as share of GDP State-owned banks Foreign owned banks of GDP Private sector, in (CDS spread, bps) NPL in Dec 2010 NPL in latest
Albania 77,0 0,0 92,4 68,3 58,8 7,6 8,7
Bosnia and Herzegovina 86,7 0,8 94,5 34,8 161,8 ... ...
Croatia 116,8 4,3 90,3 61,8 117,5 492,5 ... ...
FYR Macedonia 65,4 1,4 93,3 50,2 94,3 ... ...
Montenegro 97,4 0,0 88,4 51,2 126,5 21,0 ...
Poland 76,8 22,9 70,5 45,5 116,3 268,6 8,8 8,4
Serbia 65,3 16,0 75,3 16,9 17,1
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Corporate Income Tax Rates, 2011
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Rates of Value Added Tax, 2011
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Fiscal Balance and Public Debt, 2011
Country Fiscal balance, in of GDP Public debt, in of GDP
Albania -3.6 60.0
Bosnia and Herzegovina -1.3 39.0
Croatia -5.0 46.0
FYR Macedonia -2.5 27.7
Montenegro -4.1 45.9
Serbia -5.0 49.0
     
Germany -0.8 80.5
Greece -9.4 170.6
Poland -5.0 56.4
EU-27 -4.4 82.5
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Balance on Current Account, as percentage of GDP
Country 2004 2005 2007 2010 2011
Albania -4.0 -6.1 -10.4 -11.4 -12.3
Bosnia and Herzegovina -16.2 -17.1 -10.7 -5.7 -8.8
Croatia -4.1 -5.3 -7.3 -1.1 -1.0
Kosovo -8.4 -7.4 -8.3 -17.4 -20.3
FYR Macedonia -8.1 -2.5 -7.1 -2.1 -2.7
Montenegro -7.2 -16.6 -39.5 -24.6 -19.5
Serbia -12.2 -8.8 -16.1 -7.4 -9.5
           
Germany 4.7 5.1 7.4 6.0 5.7
Greece -5.8 -7.6 -14.6 -10.1 -9.8
Poland -5.2 -2.4 -6.2 -4.7 -4.3
EU-27 0.5 0.1 -0.4 0 0.2
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Unemployment Rate, LFS, in percentage
Country Unemployment rate, 2008 Unemployment rate, 2010 Unemployment rate, 2011
Albania 13.0 13.7 14.0
Bosnia and Herzegovina 23.4 27.2 27.6
Croatia 8.4 11.8 13.5
Macedonia 33.8 32.0 31.4
Montenegro 17.2 19.6 19.7
Serbia 13.6 19.2 23.0
       
Germany 7.5 7.1 5.9
Greece 7.7 12.6 17.7
Poland 7.1 9.6 9.7
EU-27 7.1 9.7 9.7
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Monthly Remuneration per Employee, 2010
Country Euros (EU-27100) Index of real wages, 2009 (2000100)
Albania 246 8.9 n.a.
Bosnia and Herzegovina 622 22.4 n.a.
Croatia 1054 38.0 121
FYR Macedonia 491 17.7 159
Montenegro 715 25.8 195
Serbia 461 16.6 245
Poland 883 31.8 125
EU-27 2776 100 134
21
Gross national savings of GDP
22
Income Inequality, the Gini Index, 2008
23
Poverty Headcount Ratio at National Poverty Line
(percentage of population)
Country 2000 2001 2002 2003 2004 2005 2006 2007 2008
Albania 25.4 18.5 12.4
Bosnia and Herzegovina 19.5 17.7 14
Croatia 11.2 11.1
FYR Macedonia 19.1 19.2 18.5 20.4 19
Montenegro 11.2 11.3 8 4.9
Serbia 14 14.6 9 6.6
Poland 14.8 15.6 16.6
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IMF Advices Tailored to Individual Country
Circumstances
  Labour market institutions and policies Labour market institutions and policies Labour market institutions and policies Labour market institutions and policies Labour market institutions and policies Labour market institutions and policies Broader policies Broader policies Broader policies
Country Minimum wages Unemployment benefits Labour tax Employment protection legislation Collective bargaining Active labour market policies Public wage bill Pensions Growth reforms
Greece v   v   v   v v v
Iceland           v      
Latvia v           v v  
Portugal v v v v   v      
Romania             v v  
Serbia             v v  
Ukraine               v  
25
CPI (Transparency International) World Score
26

Corruption perception index
Rank Score
Albania 113 33
BosniaHerz. 72 42
Bulgaria 75 41
Croatia 62 46
Czech rep. 54 49
FYRM 69 43
Greece 75 41
Hungary 46 55
Kosovo 105 34
Latvia 54 49
Lithuania 48 64
Montenegro 75 41
Poland 41 58
Romania 66 44
Serbia 80 39
Slovakia 62 46
Slovenia 37 61
Turkey 54 49
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Corruption perception index (TI) Rank by
countries
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Western Balkans Corruption
Indicator Total Urban Rural Male Female
Percentage of population having contact with public administration 82 83,5 80,3 82,4 81,7
Prevalence of bribery () 12,5 12,2 12,9 13,3 11,7
Average number of bribes 5,0 4,9 5,1 4,9 5,1
Average amount paid (EUR) 133 149 116 130 138
Average amount paid (EUR.PPP) 257 294 216 125 255
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Average amount of bribes paid in cash as
percentage of GDP per capita and as percentage of
average nominal monthly salary, by country/area
(2010)
Countries/Areas Countries/Areas Countries/Areas Countries/Areas Countries/Areas Countries/Areas Countries/Areas Countries/Areas
Indicators Albania BosniaHerzegovina Croatia Kosovo Montegegro Serbia FYRM
Average bribe (EUR.PPP) 103 222 410 174 480 349 1212
Average bribe (EUR) 43 112 280 179 233 165 470
Average bribe as of GDP/capita 1,6 3,5 2,7 10,0 4,9 4,0 14,4
Average bribe as of average nominal monthly salary 14 28 27 n.a. 50 35 144
30
Percentage distribution of bribes paid, by
purpose of payment
31
Percentage distribution of bribes paid by type of
payment
32
The underground/shadow economy affects ........
33
Twin peaksBoth unemployment and government debt
are high in advancedeconomies following the
Great Recession
Advanced economies unemployment rate Advanced economies general government gross debt

Source Finance Development September 2011
34
Cutbacks hit home Fiscal consolidation reduces
incomes and raises unemployment in the short
run.Impact of a 1 percent of GDP fiscal
consolidation on GDP and unemployment
Note Chart reports point estimates and
one-standard-error bands income measured by real
GDP. See IMF (2010) and Guajardo, Leigh, and
Pescatori (2011) for estimation details.
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No job soonFiscal contractions raise
unemployment, particularlylong-term unemployment
Impact of a 1 percent of GDP fiscal consolidation on short-term unemployment Impact of a 1 percent of GDP fiscal consolidation on long-term unemployment

Source Finance Development September 2011
36
Hitting paychecksSpending cutbacks affect wage
earners the most.
Impact of a 1 percent fiscal consolidation on wage income Impact of a 1 percent fiscal consolidation on prot and rent income


Source Finance Development September 2011
37
More austerity?

• No! Jim ONeill, president of Goldman Sachs asset
  management and father of the acronym BRIC
• introducing reforms does not imply austerity!
• reducing a governments deficit without a clear
  strategy for economic growth is not an
  intelligent policy.
• No! Deutsche Bank
• it is important to let the ECB pump money into
  the system without having this imply
  conditionality. That is, the ECB should use
  anti-spread shield to cut interest rates on
  Italian and Spanish debt without having to ask
  additional austerity measures to the two
  countries.

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Relevant Changes

• Aligning Western Balkans legislation with the EU
  acquis in the field of labour law
• Aligning the anti-discrimination laws with the EU
  acquis
• Implementation of relevant social legislation
• More efforts in the area of social dialogue
• Cope with unstable and deteriorating labour
  markets
• Free movement of labour with EU markets
  (Croatian workers)?
• NB EU new budget (2014-2020) priorities
  employment, innovation, effective management
  natural resources.

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The Internet economy a big change for the region?

• By 2016, there will be 3 billion Internet users
  globally, a bit less that half the worlds
  population. The Internet economy will reach 4.2
  trillion in the G-20 economies
• - if it were a national economy, the Internet
  economy would rank in the worlds top five,
  behind only the U.S., China, Japan, and India,
  and ahead of Germany. Across the G-20, it
  already amounted to 4.1 of GDP, or 2.3
  trillion, in 2010surpassing the economies of
  Italy and Brazil
• - the Internet is powering growth and creating
  jobs.
•  
• In an average country 10 in the Internet
  usage increase employment of 0.44 and 1.47 of
  youth employment.
•   The Internet economy in the developed markets
  of the G-20 is forecast to grow at an annual rate
  of 8 over the next five years. In developing
  markets, annual growth is expected to be 18.
  These rates far outpace just about every
  traditional economic sector.
• This growth delivers new jobs across the
  employment spectrum and the jobs this growth
  creates are more valuable than others. Estimates
  show that in the United States the multiplier
  effect for high-tech positions is three times
  that for jobs in traditional manufacturing.
• Markets worldwide shows that in the last three
  years, small and midsize companies that have
  embraced the Internet in their business
  operations grew by 10 annually, adding jobs as
  they did so. Companies that have not grew more
  slowly or shrank over the same period.
• In recent years, multiple Central and Eastern
  European countries have undertaken efforts to
  build Internet enablement and engagement.
  Estonias EstWin program aims to provide every
  household and business with fast fiber-optic
  network access by 2015. Latvia and Lithuania
  rank among the top five countries for upload and
  download speeds

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Thank you!